Boardroom Trilemma Resolves When Duty, Nomination And Loyalty All Bow To The Institution Itself

On September 17, India's most revered corporate institution produced two contradictory truths. The Tata Sons board reappointed N Chandrasekaran as executive chairman, by four votes to one, and resolved to move towards listing.

Within hours, Tata Trusts, which own two-thirds of the company, called the resolution a legal nullity, arguing that the Articles of Association require both Trust-nominated directors to support it. A regulator's letter, a chairman's reversed decision to step aside, and a large shareholder seeking liquidity all now sit on one table. Everyone is asking who is right. The harder question is what a director owes when his appointer, the law and the institution pull in different directions.

The Trilemma

Section 166 of the Companies Act is unambiguous. A director must act in good faith for the members as a whole. He must also act in the best interests of the company, its employees, the community and the environment, and exercise independent judgement.

A nominee director carries an owner's perspective into the room. He is not the owner's remote control. Reports that a Trust-nominated director at Tata Sons declined to be bound by his nominator on listing should be read in that light. That is the textbook position.

Yet in 2021 the Supreme Court upheld Tata Sons' Articles, including the Trust nominees' affirmative rights. Owners may lawfully reserve certain decisions for certain voices.

So, fiduciary duty says think for the company. Nominee obligation says honour the charter your appointer negotiated. Loyalty, whether to a founder, a chairman or a legacy, whispers something else again. All three are legitimate, and at Tata Sons they cannot all be satisfied at once. That is the trilemma, and no clause in any Articles will dissolve it. Only judgement will.

The lesson for every promoter, family office, private equity sponsor and trust is blunt. If you create special rights, design in advance how they will be exercised and how deadlock will be broken. A constitution without a deadlock protocol invites litigation.

In November 2023, OpenAI's board had every legal power to remove Sam Altman. What it lacked was a process that employees, investors and partners could understand. Within five days, Altman was back and most of the board was gone.

Boards are judged twice: by courts on legality and by stakeholders on legitimacy. The Articles dispute at Tata will be settled by a court or a compromise.

Whether Bombay House is still seen as a place of dignified decision-making will be settled sooner, in the court of trust.

Jamsetji Tata pioneered the idea that enterprise profits should flow to public good, a model Denmark's enterprise foundations share. Last year, the Novo Nordisk Foundation used its control to reshape Novo Nordisk's board, unsettling some observers and reassuring others.

Such ownership places two roles, public steward and commercial controller, in one set of hands. It thrives when trustees and directors see one continuum of stewardship, and it frays when they see adversaries. At Tata, the Trusts want to preserve the Tata model, and the board must answer its regulator. At root, both are stewardship arguments. That shared ground is where resolution lives.

Succession and Oversight

Succession is the supreme fiduciary act. American conglomerate Berkshire Hathaway prepared the world for Greg Abel over the years.

Disney had to recall Bob Iger after treating succession as an event rather than a process. The Tata lesson is sharper still: keep leadership continuity and ownership structure as separate decisions. When one becomes a proxy for the other, both are contaminated.

Oversight is the quieter duty. Delaware's Caremark doctrine holds directors liable for failing to build systems that absorb mission-critical risk. Boeing's directors settled such a claim after the 737 MAX crashes.

At home, Satyam's independent directors approved a related-party deal weeks before the chairman confessed to fabricated accounts. The common failure is deference. So is its mirror image, reflexive confrontation. A mature director holds loyalty and scepticism in the same hand.

Reputation is a balance-sheet item. Volkswagen's emissions deception cost it over €30bn. The Tata name, built by Jamsetji, JRD and Ratan Tata, is arguably India's most valuable reputational asset. Every statement issued in anger draws that account down. Every disagreement conducted with restraint replenishes it.

A Director's Dharma

A director's dharma towards the entity is the whole company and across time—not the nominator, the chair or the share price. Towards the constitution, it’s honouring the Articles in letter and spirit—amending them openly and never routing around them.

Towards the process, the dharma is to record dissent with reasons, seek independent counsel and give every director a hearing as process manufactures legitimacy.

It’s vital to build systems that absorb bad news early and ask the second question. Towards society, an enterprise is a trust held for employees, customers, communities and generations unborn.

At Tata, a fabulous outcome has five parts: a swift, dignified settlement of the legal question, through dialogue first; candid engagement with the RBI on meeting, sequencing or restructuring the listing obligation; a fair liquidity path for the SP Group; a succession process owned jointly by the board and the Trusts; if listing comes, acceptance that market regulator Sebi requires shareholder special rights in listed companies to be re-approved every five years.

The Tata model would then have to earn its legitimacy repeatedly. That is not a threat. It could be its greatest validation.

For every other board, the checklist is: write deadlock protocols before you need them; keep succession permanently on the agenda; brief every nominee director on Section 166 on day one; agree in calm weather how you will speak in a storm.

The Isha Upanishad, which Mahatma Gandhi saw as the root of trusteeship, counsels tena tyaktena bhunjitha. Enjoy through renunciation, and do not covet what belongs to another. A director holds power he does not own, on behalf of people he may never meet.

That is how the trilemma resolves. Duty, nomination and loyalty all bow to the institution itself.

For over 150 years, the House of Tata has taught India how to build institutions. Its greatest gift now may be showing how honourable people resolve disagreement. That lesson will outlast any chairman, any vote and any listing.

The writer is a corporate governance expert and chairman of Board Stewardship, and serves on the boards of several listed companies